Five years on from the start of the financial crisis there are still banks that are "too big to fail" and governments around the world must do more to reform the financial system, a top Bank of England official has warned.
The deputy governor Jon Cunliffe said there had been progress on a reform programme launched by the G20 group of countries at summits in 2008 and 2009, but the issue remained of banks that were deemed too large and international to be allowed to fail and so required publicly funded bailouts.
Cunliffe, responsible for financial stability at the Bank, said getting agreement on international standards to end the problem of "too big to fail" was perhaps the most important regulatory priority for the G20 summit in Brisbane in November this year.
"I do not think we can say with confidence now that we could resolve a failing global giant," he told a conference at London's Chatham House. Ending too big to fail may well be the litmus by which the public judged the success of the entire reform programme, he added.
"Nothing has so incensed public opinion and damaged societal support for the financial sector than the apparent 'heads I win, tails you lose' experience of private profits and pay when things went well and public losses when they did not. We will not fully restore public confidence until we can show that we can resolve failing banks – no matter how large – without public support," he said.
Cunliffe, who was the UK's permanent representative to the European Union before joining the BoE last year, called for action from the European parliament to keep reforms moving. He said it was crucial that the parliament give final approval to a new law allowing national regulators in the EU to wind down failing banks.
The deputy governor laid out two key conditions for the reform programme for global financial markets to be a success: coherence and mutual trust. The latter would be toughest given that at international level, authorities can only agree standards, rather than police them.
"We cannot implement them in international law, in international regulations. That can only be done by national legislators in national law. Nor, when we have implemented the rules, do we have international supervisors to apply them to international firms. We have only national supervisors, answerable to national parliaments," he said.
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